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Shares of Electronic Arts fell Friday as an analyst downgraded the company’s shares ahead of next week’s earnings report, while raising questions about the value of one of its popular new games.
stock (ticker: EA) was down 1.8% to $92.69 Friday afternoon as MKM Partners analyst Eric Handler downgraded the stock to Neutral from Buy. He raised his price target by $8 to $100, below FactSet’s $104 average and representing just a 7% premium to the current price.
Handler boosted his fiscal 2020 earnings-per-share estimate by 34 cents to $4.36, but that is below FactSet’s consensus of $4.52. “We are less enthusiastic about the incremental drivers in fiscal 2020 than we were two to three months ago,” he wrote.
Here are two reasons why, according to Handler:
• Anthem, the company’s highest-profile recent game, appears to have underperformed, and Apex Legends—a surprise free-to-play game that quickly attracted eyeballs—may be a flash in the pan.
A fiscal 2020 “estimate of $500 million of revenue for Apex Legends is far from being inconsequential, but it is less favorable than optimists eyed in February/March with bulls suggesting that $750 million to $1 billion-plus was reasonable,” Handler wrote. “The game launched with excellent reviews, high engagement, and reportedly produced $92mn of revenue in February. However, since that time the game’s popularity has fallen considerably.”
• While a forthcoming Star Wars game, Fallen Order, could sell well when it is released—scheduled for November—it doesn’t appear to have much long-term revenue potential. That may please some players, but perhaps not investors.
“Our key issue with the game is that as a story-driven game it will not have a multiplayer component and there will be no microtransactions, thus eliminating recurrent revenue spending,” Handler wrote.
Electronic Arts is schedule to report fiscal fourth-quarter (ended March 31) results on Tuesday after the market’s close. A conference call with management is scheduled for 5 p.m. Eastern Time Tuesday.
Its report will mark a sort of midpoint for videogame-publisher earnings season, with
Activision Blizzard
(ATVI) down 5.1% Friday amid investor displeasure with its just-released numbers and
Take-Two Interactive
’s
(TTWO) coming later. Take-Two was up 2%.
All told, Handler wrote, “We no longer see sufficient upside to justify a Buy rating” on EA.
Email David Marino-Nachison at david.marino-nachison@barrons.com. Follow him at @marinonachison and follow Barron’s Next at @barronsnext.